Re-refinancing to cut your mortgage payments

Getting a do-over on your refinance - something known as re-refinancing - has become one of the hottest trends in the world of home mortgages.

Why? According to industry experts, homeowners who refinanced in the past - but still have high interest rates or poor loan terms - are making the most of refinancing yet again to better their financial situations.

"The taboo or assumption that you don't want to keep refinancing and refinancing is completely out the door," says Steven Bote, a senior mortgage consultant at Wintrust Mortgage, a financial services holding company based in the Chicago area. "It is very commonplace for a homeowner today to refinance three times in the last five years because of the improving interest rate environment."

So if you've refinanced in the past few years, consider the following four reasons why refinancing again might be for you.

Reason #1: You can get a lower interest rate than when you refinanced the first time

Interest rates aren't the sole factor driving the re-refinancing trend, but they are high on the list of reasons it makes dollars - and sense - to consider another do-over of your home loan.

"It used to be that you wouldn't consider refinancing unless you could save 1 percent, but in today's market, you can get a substantial savings with [a] .875 percent [difference] because the interest rates are lower to begin with," says Bote.

For example, a 30-year fixed-rate loan of $200,000 has a monthly payment of $1,013.37 with a 4.5 percent interest rate, compared to payments of $912.10 at an interest rate of 3.625 percent. That's a savings of $101 per month.

And over 10 years, the .875 percent difference in the interest rate yields a total savings of over $12,000 - which is nothing to sneeze at, as the expression goes.

Bote also points out that interest rates have been on a steady decline since 2007, so if a borrower has refinanced once in the past six years, it might be worth it to consider a re-refinance and potentially reduce your monthly principal and interest payments.

Reason #2: Your finances have changed - for better or worse

Did you get a decent raise for all your hard work last year? Have financial investments rewarded you with bigger returns than you expected? For homeowners who find themselves with some extra income or cash in hand, re-refinancing might be an option to take advantage of positive financial gains.

"When people have more cash, I say re-evaluate their entire financial situation," Bote says.

Part of that re-evaluation is looking at re-refinancing as a way to potentially reduce your loan terms - that is, the overall length of your home loan. One strategy Bote recommends is going from a 30-year to 25-year fixed-rate mortgage by using your extra income to help you qualify for a re-refinance. His rationale is that even if you maintain the same interest rate on the new loan, you can reduce the total amount of interest paid over the life of the loan.

But if you find yourself on the other end of the spectrum and you're strapped for cash, doing the opposite and re-refinancing to a longer term loan to lower monthly payments might be a better option. Even though you'll be paying the loan for longer and you'll spend more in interest over the life of the loan, it may be worth having the lower payments on a monthly basis to make ends meet.

Reason #3: You want to go from an adjustable to a fixed-rate mortgage

Did your most recent refinance result in you getting an adjustable-rate mortgage (ARM)? If so, you might want to think about re-refinancing your loan and locking in a low rate with a fixed-rate mortgage (FRM).

Bote offers an example of a situation where a client re-refinanced from an ARM to an FRM: The client had a 5/1 ARM with a 3.125 percent interest rate. An ARM of this nature, Bote says, means the loan began with a fixed interest rate for five years before it was scheduled to change every year after that for the remainder of the loan term. After this initial fixed-rate period the interest rate fluctuates in relation to an index.

"As a result of an improving interest rate environment, she went to a 30-year-fixed rate at 3.375 percent," Bote explains of the switch from an ARM to FRM. "The rate was a quarter percent higher and her monthly payment went up 30 bucks."

Choosing the higher FRM interest rate made sense for the homeowner because once the ARMs initial five-year rate was over, the fluctuating interest rate would likely be much higher than the FRM's 3.375 percent. In this case, locking in a slightly higher fixed interest rate over a longer period of time validated the re-refinancing, Bote says.

Reason #4: You're a senior homeowner who needs income for living expenses

Homeowners who might be in the midst of retirement planning could use re-refinancing to put them in a better financial position once they leave the workforce, according to Bill Burnett, a mortgage planning specialist and president of Homestead Mortgage in Lorton, Virginia.

Burnett says owning a home and re-refinancing to what's called a "reverse mortgage" can help senior homeowners - age 62 and older - use the equity in their home to pay for their daily living expenses.

A reverse mortgage is essentially what the name says it is - a mortgage in reverse. That means that instead of a homeowner making mortgage payments to a lender to pay off their mortgage debt every month, the lender instead makes payments to the homeowner from the equity that is in the home.

Sound too good to be true? It is - sort of. That's because there are a few downsides to this option, according to the Federal Trade Commission's Consumer Information on Reverse Mortgages. These downsides include costs to take out the reverse mortgage, along with the chance of leaving a financial burden on your heir(s). Plus, the money doesn't come for free, so you'll also be charged interest for the amount you receive from the lender.

So while this can be a good option for some, it may certainly not be a good option for all. To find out if re-refinancing is right for you, Burnett says a good approach might include utilizing a mortgage professional who is experienced with refinance "do-overs."